Question

A bank will loan you $8,500 for four years to buy a car. The loan must be repaid in 48 equal monthly payments. The annual interest rate on the loan is 16% of the unpaid balance. What is the amount of the monthly payments?

Answer 1

Solution:

Informations given in the question are as follows:

Loan amount (P) = $ 8,500

Loan period = 4 Years

Interest rate (R) = 16 % per annum i.e. 16/100 = 0.16

No. of instalment (n) = 48

Amount of monthly payment = ?

Amount of monthly payment here simply means EMI i.e. Equal monthly instalment.

EMI can be calculated by using the formula given below-

EMI = [P X r X (1+r)^n]/[(1+r)^n - 1]

Here:

EMI = Equal monthly instalment

P = Principal amount (Amount borrowed)

r = R/100

R = Rate of interest per annum

n = No. of payments

Now, by putting the informations given in the question in formula we can calculate the EMI.

Therefore

EMI = [$ 8,500 X 0.16 X (1 + 016)^48]/ [ (1+.016)^48 -1]

EMI = $ 1361.09